Will China Dominate the World?

David GoldmanThe Farm Foundation

April 30, 2019

China is a unique event in economic history

China vs. US GDP (Purchasing Power Parity)

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World Bank

China vs. US GDP (Current US$)

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Tang 618-907

China is always half-unified

China Subsidizes Capital Investment

-10-505

1015202530354045

0 0.1 0.2 0.3

ROE

Capital Intensity (Assets/Earnings)

Capital Intensity vs. ROE in MSCI China Equity Index

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Capital Intensity (Assets/EBIT)

S&P 500 goes "Capital Light"

China Gains in Tech Exports

0.0%

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20.0%

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35.0%

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1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Share of Global High Technology Exports

China

European Union

Japan

Korea, Rep.

United States

Wireless Sites Per Capita and 5G

During 2017, China Tower added approximately 460 sites per day, implying US tower companies and carriers added fewer sites in the last three years than China Tower added in three months.

Greater China’s $1 Trillion Plan

China’s R&D Spending Will Overtake America’s in the Early 2020’s

Source: OECD

% of GDP

China has 4X our STEM B.A.’s and 2X our STEM PhD’s

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Australia

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China

Engineering Students as % of Total

China’s Education Gap Widens

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STEM 1st University Degrees

China

United States

EU-Top 8

Japan

US Basic R&D Falls

0.30%

0.40%

0.50%

0.60%

0.70%

0.80%

1976

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Federal R&D Spending as a % of GDP

Research

Development

Why Tariffs May Backfire

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China's Largest Exports to US (2017)

Why Tariffs May Backfire (II)

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US Exports to China

Chinese leaps in technology• Landed a probe on dark side of moon;• Developed successful quantum communication via

satellite;• Built a 2,000-kilometer quantum communication

network between Beijing and Shanghai;• Built missiles that can blind American satellites;• Developed surface-to-ship missiles that can destroy

any vessel within hundreds of miles of its coast; and• Built some of the world’s fastest supercomputers• Outspent the US between 5:1 and 10:1 in quantum

computing

The US should…• Force key high-tech industries onshore using defense

subsidies/tax breaks• Place export controls on high tech (no more Boeing

satellites to help China surveil its citizens)• Change Defense Department budget priorities to

emphasize war-winning advance technologies rather than legacy systems

• Offer a new National Defense Education Act• Create an alternative to the Belt and Road Initiative

with Japan, South Korea, India and others• Engineer a brain drain of China’s most talented

scientific cadre.